Market Abuse Regulation: what issuers should be doing now

The Market Abuse Regulation (MAR) is coming into effect from 3 July 2016. Whilst both the FCA and AIM Regulation are currently consulting on rule changes to the FCA Handbook and AIM Rules for Companies resulting from MAR, there are steps issuers should be considering now in order to ensure that they are compliant with the new regime from the implementation date.

What is MAR? A reminder

MAR is a European regulation which implements a harmonised EU-wide market abuse regime, replacing the existing Market Abuse Directive. In addition to prescribing market abuse offences, MAR deals with:

• the management and disclosure of inside information (currently set out in Disclosure and Transparency Rule (DTR) 2 for main market companies and AIM Rule 11 for AIM companies)
• the maintenance of insider lists
• the PDMR dealing notification regime (currently set out in DTR 3 and, for directors of AIM companies, AIM Rule 17)

MAR’s extended regulatory reach means that, for the first time, the control and disclosure of inside information, maintenance of insider lists and PDMR dealing notification in respect of AIM companies will be governed by MAR and enforced by the FCA.

Further background on MAR can be found here.

Management and disclosure of inside information

Identifying inside information under MAR

Generally speaking, what would be categorised as inside information under the current DTR 2 regime will remain inside information under MAR. This is because the technical definition of inside information under MAR is now more consistent with the FCA’s increasingly expansive approach (as shown in recent enforcement cases) to identifying inside information.

In the FCA’s view, the test of identifying inside information is more closely related to whether a reasonable investor would use the information as part of his or her investment decisions, and less on the effect on price of that information. In practical terms, this means that only information which would lead solely to “trivial” movements in price is likely to escape categorisation as inside information.

The FCA has set out its views on identifying inside information most recently in Consultation Paper CP15/38 and we anticipate that their approach will be unchanged post-MAR.

MAR preserves (in large part) the existing disclosure regime set out in DTR 2, and in particular allows issuers to delay disclosure in limited circumstances in order to protect their “legitimate interests” (ESMA, the body of European securities regulators, has issued what we expect to be near final-form guidance on circumstances in which issuers may delay disclosure). In order to delay disclosure of inside information, the following conditions must be satisfied:

• immediate disclosure is likely to prejudice the legitimate interests of the issuer
• delay of disclosure is not likely to mislead the public
• the issuer is able to ensure the confidentiality of that information

Currently, there is no obligation on issuers to notify the FCA of a decision to delay disclosure of inside information, although clearly issuers would need to be able to justify why they had done so if the FCA investigated a particular situation.

Under MAR, issuers (both Main Market and AIM) are under a general obligation to notify the FCA where a delay in the disclosure of inside information under the MAR framework has occurred, and provide written details of how the conditions justifying delay in disclosure were met. In respect of the obligation to provide written details, MAR enables member states to choose whether to make this a default or “on request” obligation – the FCA is currently consulting on the basis of the latter in order to reduce the regulatory burden on issuers. The information required to be disclosed to the FCA is set out in near-final technical standards, and will include:

• how the conditions justifying delay were satisfied
• identification of the disclosed inside information
• the date and time of the public disclosure of the inside information
• the date and time of the decision to delay the disclosure of inside information
• the identity of all persons with responsibilities for the decision of delaying public disclosure

Issuers will also need to ensure that inside information, when announced, is made available on their website for 5 years.

Under AIM Regulation’s current consultation proposals, AIM issuers will also need to continue to comply with AIM Rule 11 as a parallel (and, in some respects, stricter) obligation.

Action points for issuers – management and disclosure of inside information

• Consider establishing a disclosure committee of the board to deal quickly with decisions relating to the handling of inside information
• Formalise internal processes for deciding to delay disclosure and identify contact points for the FCA
• Create internal templates for recording decisions to delay disclosure
• Identify existing inside information as at 3 July 2016 (if any) and record the decision to delay, assessed against the conditions set out above
• Liaise with professional advisers to ensure insider lists are being maintained and that there is express right of access
• Review website to ensure it can display inside information for the required period (we anticipate that the current practice of having links to the company’s RIS feed will continue in order to discharge this obligation)

The existing obligation on Main Market companies to maintain insider lists specifying those with access to inside information on a permanent or deal-specific basis is preserved under MAR, with the requirement extended to AIM companies (subject to some relaxation from January 2018 when the “SME growth market” regime will be introduced through the coming into force of MiFID II).Maintenance of insider lists

The obligation bites both on issuers and others acting on its behalf (advisers, accountants etc). Where a third party (such as a financial adviser) maintains an insider list in relation to the issuer, the issuer remains responsible for the maintenance of the list by that third party and must retain a right of access to those lists.

The format of the insider list is prescribed by EU regulation and includes fields to capture the following information on each insider:

• personal details (name, birth name, date of birth, NI number)
• work contact details
• function within the issuer and the reason for becoming insider
• date and time access to inside information started and ended
• personal address and phone numbers (home and mobile)

The final insider list templates can be found in the Annexes to this implementing regulation. All issuers (both Main Market and AIM) will need to use the template set out in Annex I from 3 July 2016. From January 2018, AIM issuers will no longer be subject to an ongoing requirement to maintain an insider list, but will be required to provide the information prescribed by the template set out in Annex II to the FCA on request. In practice, we expect AIM companies to continue to maintain an updated insider list after January 2018 given this obligation.

Issuers must take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.

Action points for issuers – creating and maintaining insider lists

• Identify permanent insiders and current “deal specific” insiders
• Create/update insider lists using the annexes linked above and obtain any missing personal data
• Provide training on new regime to relevant individuals and obtain appropriate acknowledgements

PDMR dealing

Dealing notification

MAR substantially preserves the disclosure regime in relation to Main Market PDMR dealing, and extends it to AIM companies for the first time (currently, AIM company directors’ dealings are announced under AIM Rule 17). Under MAR, PDMRs must notify the issuer promptly (and in any event within three days) of every transaction relating to issuer’s financial instruments (or related derivatives) conducted by:

• the PDMR
• their closely associated persons (CAPs):
  • spouse/civil partners
  • dependent children
  • relatives living in same household for at least one year prior to transaction
  • companies/trusts etc. benefitting and managed by any of the above

The issuer is then obliged to publish the notification promptly and in any event with three days. Both notification and publication must be made using a prescribed template, which can be found here.

In light of this MAR obligation, AIM Rule 17 will be amended to remove the requirement for directors to disclose dealings in AIM securities, and new guidance will be included to Rule 17 flagging the notification requirement under MAR.

Who are a company’s PDMRs?

PDMRs are:

• members of the issuer’s board
• other senior managers who have:
  • regular access to inside information; and
  • the power to take managerial decisions affecting the future developments and business prospects of that entity

Usually, the first tier of non-board management are treated as PDMRs (sometimes referred to as the “executive” or “management” board). For AIM companies (and smaller Main Market companies), there may be no-one in senior management category, but issuers are best to err on the side of caution when determining their PDMRs. General counsel are generally not considered to be PDMRs, although the analysis is always fact-specific.
MAR prescribes a mandatory close period of 30 days prior to the publication of a company’s annual and half year reports (it is currently unclear whether or not a company’s preliminary announcement could constitute its “annual report” for these purposes – further guidance is awaited from the FCA on this). The FCA is currently consulting on whether to retain the Model Code as guidance for Main Market companies in granting clearance to deal outside MAR close periods, effectively reintroducing super-equivalent extended close periods. Various bodies have voiced concerns with the FCA’s proposed approach (including the GC100, the QCA and City of London Law Society), some of whom have suggested that companies should be left to determine their own dealing policies.

Mandatory close periods

In light of the overlap between the MAR obligation and the existing scope of AIM Rule 21, AIM Regulation is proposing to replace AIM Rule 21 with an obligation for AIM companies to adopt an appropriate dealing policy. Whilst AIM Regulation does “not intend to prescribe the detailed content of the dealing policy”, it does “propose to set out the minimum provisions that [AIM Regulation] would expect to see in the policy”. AIM companies will need to update the existing dealing policies to reflect this guidance (when issued) – it is likely that AIM Regulation’s approach will be influenced by the awaited FCA policy decision on the future of the Model Code.

Action points for issuers – PDMR dealing

• AIM companies should identify PDMRs
• Help PDMRs identify CAPs
• All listed companies to maintain a list of PDMRs and their CAPs
• All listed companies should provide training to PDMRs on MAR obligations
• Update share dealing code once Model Code/New AIM Rule 21 dealing policy interaction with MAR close periods settled and provide training to relevant individuals
• Update processes to incorporate new PDMR dealing notification template

Please get in touch with any of the contacts listed below to discuss any aspect of MAR.